Hansard

I welcome this opportunity to set out the Government's proposals for the establishment of the Scottish futures trust. In doing so, I wish to set the initiative in the context of Scotland's infrastructure investment needs and the Government's plans to address those needs.

Infrastructure investment is vital for Scotland's economic growth and the provision of excellent public services. In late March, the Government published its infrastructure investment plan, which shows clearly where our priorities for investment lie. The infrastructure investment plan includes investment of £14 billion over the next three years and of more than £35 billion over the next 10 years. Because of the critical contribution that infrastructure investment makes to economic growth, we raised public funding for direct public sector investment over the spending review 2007 period to the highest ever level, despite receiving a very tight budget from the Westminster Parliament.

The infrastructure investment plan highlights the physical assets that are needed to grow the economy and to support high-quality public services. We will work with the public and private sectors to realise our plans. That is why the infrastructure investment plan sets out significant continuing opportunities and why we regard the Scottish futures trust as a high priority that will allow us to do more for our money, put a new focus on sustainability and provide wider benefits for the Scottish economy.

My priority as Scotland's finance minister is to get best value and the best deal for Scottish taxpayers, regardless of whether the investment comes from private or public sources. That is why the SFT is designed to marry the benefits of strong and effective public procurement with the project management and project delivery skills that the market can bring.

As the infrastructure investment plan makes clear, over the next three years there are many, many opportunities for new investment, including opportunities for new private investment in buildings and road projects that amount to more than £3 billion. Although there are many bidding opportunities in the United Kingdom and across the globe, I have no doubt that the package of investment opportunities that is available in Scotland is attractive and competitive. Indeed, the certainty of our investment plans is a particular strength in these times of otherwise troubled markets. What we are offering is stronger than what has come before because, for the first time, we have been able to present to the market opportunities for both central and local government in our infrastructure investment plan.

The Government has brought forward a strong pipeline of projects to invest in the infrastructure of Scotland. Those projects are being implemented throughout our country. Indeed, this morning, the First Minister inaugurated the construction of the M74 completion project, which is one of the many projects that the previous Administration failed to deliver. Reading across sectors, there is a significant volume of projects in the plan, progress on which will be accelerated and enhanced by the introduction of the SFT.

I will now deal with specific sectors. We are delivering on schools. We came into government with a commitment to match the previous Administration's school building programme brick for brick. We are doing exactly that. We have taken the pragmatic decision to support the 19 private finance initiative projects that reached financial close under the previous Administration—it signed the contracts, but we are paying the bills for its decisions. When we came into office, we discovered the shocking reality of the previous Administration's approach. In order to realise those projects, we have had to put in place significant additional funds that were not budgeted for by the previous Administration.

Since May 2007, we have signed off another seven projects that will result in 45 schools being built. Some of those are non-profit distributing projects, covering 14 of the 45 schools. Another four projects, of which three are NPD, are in the pipeline—in time, they will deliver a further 13 schools, nine through NPD projects. Since last May, we have signed off projects with an investment value of some £1 billion.

We have improved projects when the opportunity to do so has existed, as our approach to the NPD model demonstrates. The model has been designed to tackle the unacceptable components of PFI and to deliver better value for the taxpayer. Audit Scotland has vindicated that approach, pointing up the need to reflect on the lessons that can be learned from the past few years of the PFI programme.

The Opposition is interested in numbers, so I will give the Parliament numbers. Some 250 schools will be delivered during the four-year parliamentary session.

An important part of the concordat and our new relationship with local authorities is the new funding settlement, which involves far less ring fencing of funds, thereby allowing local authorities to identify and control their own expenditure on local priorities. The local government settlement includes around £3 billion for infrastructure, including schools. The revenue settlement includes support for the schools PFI projects and has the potential to support prudential schemes.

Many authorities are making schools their investment priority. The infrastructure investment plan sets out authorities' plans, in response to the new opportunities that we have created, to invest in schools infrastructure more than £1 billion from traditional capital sources over the next five years.

In total, almost £2 billion will be invested in new and improved school buildings. That is £2 billion of investment by this Government and our local authority partners in the future learning success of Scottish schoolchildren the length and breadth of the country.

With our local government partners, we are committed to continuing the programme of improvements to the school estate. We recognise the resource requirements and the lead times involved. We said in the infrastructure investment plan that we will take decisions on future resources over the period of the current local government settlement no later than the next spending review.

As for the way ahead, we will move forward on two fronts concurrently. In response to the Audit Scotland report, the Government has already started discussions with the Convention of Scottish Local Authorities and the authorities on how to take forward Audit Scotland's recommendations for a new policy and financial strategy for future school investment. In tandem, the Scottish futures trust will also work closely with the local government sector towards developing new ways of delivering and funding schools and, of course, other infrastructure. As part of that, I shall expect the SFT to look at the significant number of projects that authorities have already identified in the infrastructure investment plan and offer to discuss with them how the trust might help to deliver greater efficiencies and value for money.

I turn to other sectors. Just as we are delivering on schools, we also have ambitious transport plans. Those include upgrading rail connections between Inverness, Aberdeen and the central belt; the Scottish Borders rail project; the expansion of rail services between Edinburgh and Glasgow; and the construction of the M74 extension. We have committed to the replacement Forth crossing as the largest civil engineering project to be tackled in Scotland for more than a century. As we have said before, we will announce to Parliament our proposals for its delivery and funding later this year.

The infrastructure investment plan sets out a continuing strong programme of investment in the Scottish health service. We have reviewed and revised the previous Administration's investment strategy, as announced by the Deputy First Minister earlier this month. The debate about plans for acute hospitals in the central belt has been resolved quickly. The Glasgow Southern development, which is the largest health project ever in Scotland, is proceeding with a capital value of around £800 million, and it is proceeding as an investment in the public sector.

We have recognised the importance of education facilities and skills development in the infrastructure investment plan. The educated and skilled Scottish workforce, supported by the sustained strengths of the Scottish education system, is acknowledged internationally, and its infrastructure is a vital part of our economic strategy.

Let me now explain why we have moved on from the PFI model. The PFI model, used on a project-by-project basis, does not represent best value for the taxpayer. Excessive profits have been made, with huge returns for small investments based on projects that supposedly carried significant risk that did not materialise. The ability to sell on investments after an early period of construction risk has passed and then make huge returns demonstrates that windfall gains have been made. In addition, during the lifetime of this parliamentary session, the unitary charge payment for such profits will have risen from £500 million each year to nearly £800 million each year—an increase of 60 per cent when our budget is increasing by 1.4 per cent each year in real terms. That demonstrates that the previous Government's credit card spree is now creating a real financial squeeze on Scotland's budget.

For those reasons, the Government believes that we must take a different course. Obviously, under current devolved powers, the UK borrowing regime constrains the Scottish Government. However, investment and borrowing levels that are set in relation to the UK as a whole are not designed for Scotland's economic circumstances. Therefore, a Government priority will be to maximise the value that we deliver from our investment plan. That is why we believe that the Scottish futures trust is a more appropriate method of going forward than the previous Administration's reliance on the expensive PFI model.

Last week, I announced the setting up this summer of the Scottish futures trust as a delivery vehicle to take forward key SFT work streams. The SFT will provide opportunities for better value investment in Scotland's vital public service infrastructure; it will learn the lessons from previous PFI contracts to reduce the cost of funding and deliver more effective investment in planning, procurement and delivery; and it will bring together the expertise to provide a Scotland-wide municipal bond to fund future infrastructure projects. The SFT business case shows how we will release between £100 million and £150 million each year for increased investment in infrastructure through greater partnership, improved management and better value finance.

The SFT is different from and better than PFI in three ways. First, it will have at its core the non-profit distributing model of finance. The NPD model takes out the equity gains that have meant excessive profits in the PFI model. NPD employs a capped form of investment return, which allows surpluses to return to the public sector for reinvestment in the wider public infrastructure of Scotland. The NPD model offers the public sector a share of refinancing gains on all levels of debt, which PFI does not, and it offers a board membership for the delivery company that is better suited to the partnership ethos that underpins such a form of delivery and funding.

Secondly, the SFT will become a centre of excellence, providing a level of expertise in the development of projects and the negotiation of contracts that is not available to many smaller public bodies and local authorities. It will therefore deal with bidders on a more equal footing and be in a position to deliver more competitive and realistic deals. Such central expertise is provided by other nations, but there has been a shortcoming in that regard in the arrangements in Scotland. An important consequence of the new approach will be swifter project planning and delivery, which will save money because the high construction inflation costs that result from delays in project development will be avoided.

Thirdly, pooling projects will lead to efficiencies in terms of delivery, risk and finance, which will result in savings.

The early activity of the SFT will maximise value for the public sector by establishing the key strengths that deliver better-quality and more consistent assurance of infrastructure investment. The SFT will deliver new health facilities in our communities through the hub pathfinders. It will improve the delivery and funding of schools, housing, waste facilities and flood defences by working in partnership across the public sector to develop the right national strategies. It will ensure better value finance by providing guidance, structure and compliance for on-going NPD programmes. It will commence development and delivery of a Scotland-wide local authority bond issue, and it will undertake further, detailed development of innovative asset provision models.

The SFT will provide a national focus on our infrastructure requirements and plans and promote strategic and aggregated solutions on funding and delivery mechanisms. There will be close dialogue with public and private sector interests during the next year as the SFT sets about its work.

Aggregation is not just important to infrastructure investment; public bodies in Scotland are joining up in all sorts of ways to deliver services more effectively. For example, in local government the Improvement Service, which is backed by Scottish Government funding, is developing services that are shared between authorities. The McClelland review of public procurement in Scotland recommended the establishment of procurement centres of expertise, and that recommendation is being taken forward.

The Scottish futures trust is about securing not only less expensive funding but a new approach to the organisation and packaging of infrastructure investment opportunities in Scotland. Instead of the market having to respond to a large number of individual projects that have been procured by many public organisations, the SFT will operate at a higher level of aggregation, as well as being involved in single projects.

I expect the whole of the public sector and the private sector to work together on those important issues as we move forward with the Scottish futures trust and the £35 billion of infrastructure investment that is set out in our infrastructure investment plan. The Government has made clear its intention to pursue an ambitious programme of capital investment—investment that is taking place right now, right here in Scotland. The Scottish futures trust has a key role to perform in developing that programme of investment and I look forward to it delivering value to the taxpayers of Scotland.